Agricultural Trade and Freshwater Resources

Approximately 75% of all water used by humans goes towards food production, much of which is traded internationally. This study formally models how this works in the case of crop agriculture, making use of recent advances in international trade theory and new data on the productivity by which countries use water for crop agriculture. The strength of the model lies in its ability to predict, when there is a shock to the system, how trade between pairs of specific countries changes for products that use water intensively. In one application of the model, international trade in final products is shown to be a means for countries to deal with short- and long-run shocks to water resources that are too big for one country to handle by itself in isolation. In a second application of the model, trade liberalization is shown to be a means for conserving water at the global level, as production shifts to regions where it is of greater abundance.